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4 P&C Insurers Poised to Continue Their Winning Streak in 2022

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The Zacks Property and Casualty Insurance industry witnessed a mixed 2021 with economic recovery gaining traction, easing of pandemic-related restrictions and stepped-up vaccinations. Though the property and casualty (P&C) insurance industry witnessed an active hurricane season this year, better pricing and prudent underwriting have been tailwinds for insurers.  However, the new Omicron virus variant have raised concerns lately.

The P&C insurance industry has gained 14.4% year to date compared with the Finance sector’s increase of 22.3% and the Zacks S&P 500 composite’s rally of 28.6%.

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By virtue of improved pricing, exposure growth, underwriting profitability, favorable reserve development, improvements in technology, and global expansion as well as impressive solvency level, P&C insurers like Selective Insurance Group, Inc. (SIGI - Free Report) , First American Financial (FAF - Free Report) , Berkshire Hathaway (BRK.B - Free Report) and ProAssurance Corporation (PRA - Free Report) remain well poised to retain the bull run.

Factors at Play

Per Global Insurance Market Index released by Marsh, global commercial insurance prices increased 15% in the third quarter of 2021. It marked the 16th consecutive quarter of price increases. Per the Swiss Re Institute, pricing in non-life insurance commercial lines has strengthened in 2021 and this is expected to continue into 2022. Thus, better pricing should help write higher premiums. Per a report from the Deloitte Center for Financial Services, global P&C reinsurance net premiums written were up 18.5% in the first half of 2021. The Swiss Re Institute remains positive on the outlook for global insurance premiums, expecting above-trend growth of 3.3% in 2022 and 3.1% in 2023.

The P&C insurers are well-poised for growth given expanding international business.  higher retention, strong renewal, price increases, the appointment of retail agents, and a solid balance sheet.

The P&C insurance industry remains exposed to severe weather events that make the underwriting results and in turn earnings volatile. Per the Swiss Re Institute, natural catastrophe activity has been above-average throughout 2021 and a full-year insured loss of above $100 billion is expected. Nonetheless, exposure growth, improved pricing, prudent underwriting, and favorable reserve development will likely help maintain underwriting profitability.  In the first half of 2021, aggregate combined ratio of P&C reinsurers improved 1140 basis points year over year to 94.5, per a report from Deloitte Center for Financial Services.

A near-zero interest rate environment is likely to concern insurers as it weighs on investment income, one of the important components of insurers’ top line. Nevertheless, the Fed officials continue to project three hikes in 2022 and another three in 2023, and two rate hikes in 2024. At present, the interest rate ranges between 0% and 0.25%. A larger invested base, directing funds to alternative investments like private equity, hedge funds, and real estate, is expected to drive the metric in the future.

Banking on solid capital position, property and casualty industry players are pursuing mergers, acquisitions and alliances, which are likely to strengthen portfolios, diversify operations and penetrate into more profitable market segments. Per a report from the Deloitte Center for Financial Services, the P&C insurance industry witnessed 197 completed deals in the first half of 2021. Deloitte’s Global outlook survey expects more active M&A strategies in 2022, as more insurers seek growth through expansion.

These insurers have increased investment in technology. The adoption of technologies such as robotic process automation (RPA), Chatbot and RoboAdvisory, artificial intelligence (AI) and data analytics, insurtech solutions, telematics, cloud computing is gaining steam. Deloitte’s Global survey expects insurers’ technology budget to increase 13.7% in 2022.

4 Stocks on the Watchlist

Considering their operational strength, we have selected four P&C insurance stocks with the help of the Zacks Stock Screener that have gained more than 20% year to date, have a market cap of more than $1 billion, currently carry a Zacks Rank # 2 (Buy) and are well poised to keep the momentum alive in 2022.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Selective Insurance: This Branchville, NJ- based insurer together with its subsidiaries, provides insurance products and services in the United States.
Considering strong renewal fuel price increases, exposure growth, solid retention rates, and strong new business growth in outstanding commercial lines and Excess and Surplus Lines (E&S) segments, Selective Insurance’s premium income is expected to improve in the future, which, in turn, will boost revenue growth. A strong capital position is positive.

The bottom line of Selective Insurance beat estimates in each of the trailing four quarters, the average surprise being 44.85%. The Zacks Consensus Estimate for 2022 earnings has moved up 1.4% in the past 60 days. The expected long-term earnings growth rate is pegged at 13.4%, higher than the industry average of 9.7%. Shares of Selective Insurance have rallied 22.2% year to date.

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First American Financial: This Santa Ana, CA, based title insurer provides closing/settlement services; property data and automated title plant records and images; home warranty products; property and casualty insurance; banking, trust and wealth management services.

Increased demand among millennials for first-time home purchases, an improved rate environment, and strength in commercial business poise First American well for growth.

The bottom line of First American beat estimates in each of the trailing four quarters, the average surprise being 29.19%. The Zacks Consensus Estimate for 2022 earnings has moved up 0.5% in the past 30 days. FAF is well poised for progress, as is evident from its impressive VGM Score of A. Shares of First American have rallied 50.6% year to date.

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Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway holding company, owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume.

Its continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire has been creating tremendous value for shareholders for more than five decades.

Berkshire should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments.

With a huge cash hoard, Berkshire Hathaway is likely to continue its acquisition spree. While big acquisitions open up more business opportunities, bolt-on acquisitions enhance the earnings of the existing business.

The Zacks Consensus Estimate for 2022 earnings indicates 6.8% year-over-year growth. It has moved up 1.5% in the past 60 days. The expected long-term earnings growth rate is pegged at 7%. Shares of Berkshire have rallied 28.7% year to date.

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ProAssurance: Birmingham, AL-based ProAssurance provides professional liability insurance products, primarily to physicians, dentists, other healthcare providers and healthcare facilities through its subsidiaries. ProAssurance has significantly strengthened its position in the workers’ compensation market while intensifying its focus on Medical Professional Liability Insurance and enhancing its size and scale in the MPLI space. ProAssurance is the nation's third-largest specialty writer of liability insurance for healthcare professionals and facilities.

Higher new business written and strong retention rates should continue to drive premium revenues for ProAssurance. The NORCAL buyout continues to contribute a significant portion to total gross premiums written. Its initiatives to lower overall costs are bolstering operating margins and improving the expense ratio.

The bottom line of ProAssurance beat estimates in each of the trailing four quarters, the average surprise being 233.34%. The Zacks Consensus Estimate for 2022 earnings has moved up 15.9% in the past 60 days. The expected long-term earnings growth rate is pegged at 7%. Shares of ProAssurance have rallied 41.2% year to date.

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